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MailTribune.com
  • Is tax increase forcing business out?

    Medford-based ComNet Marketing Group says its expansion will happen elsewhere
  • Medford-based ComNet Marketing Group might be seeking greener pastures in the wake of recent tax increases approved by voters last month.
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  • Medford-based ComNet Marketing Group represents the region's primary business recruiter in its efforts to attract Northern California companies to the Rogue Valley.
    Now the telemarketing firm with 150 employees in Medford and Ashland might be seeking greener pastures itself in the wake of recent tax increases approved by voters last month.
    "We are always the best advocate for our clients that we can be," said ComNet Executive Vice President Bob Bailey on Wednesday. "We represent SOREDI (Southern Oregon Regional Economic Development Inc.) in Northern California, trying to bring green industry here.
    "California is so much worse (of a business) environment than Oregon, that it remains fertile territory. We may convince them to look around, but they may not come to Oregon. That's the irony."
    Measure 66 ratcheted up taxes for households with incomes of more than $250,000 and singles earning more than $125,000. Measure 67 increased the corporate minimum tax from $10 to $150 for S-corporations, LLCs and LLPs, increased the percentage paid on profit for C-corporations and added a tax on gross sales for some C-corporations.
    The two measures are expected to raise $730 million to fill a shortfall in the state's 2009-11 biennial budget and prevent cuts in education, public safety and social services.
    ComNet is among more than two dozen companies that have notified the Oregon Legislature of their intent to leave the state following the January passage of the measures.
    Rep. Sal Esquivel, R-Medford, read a letter from ComNet President and Chief Executive Officer Bruce Hough during Tuesday's House session in Salem, noting the loss of such businesses would be detrimental to the state at a time when revenue continues to decline.
    "With the implementation of these taxes, we are going to see people gradually leaving Oregon," Esquivel said Wednesday.
    ComNet is a C-corporation, whose clients are primarily member-driven nonprofits such as public radio and television stations, art associations, museums and zoos.
    "Before, we were taxed on the bottom line, not gross revenue," Hough said.
    The company has had as many as 170 employees and presently has 130 employees in Medford with 20 more in Ashland.
    "When the price of gas got so high, people didn't want to drive here," Bailey said. "So we brought work to them."
    Hough indicated the company was eyeing Eagle Point and Grants Pass satellite locations, but those plans are now scrapped while ComNet evaluates several northern Nevada locations.
    "All of our future expansion will be out of the state," Hough said. "After a certain period of time, we anticipate all of the company will be completely out of the state. Why not go to a place that understands business is what makes the engine work?"
    He said it will probably take three to five years to transition out of the Rogue Valley.
    "No one working here will be harmed in any way, but there will be no more new hiring," Hough said. "We've put a freeze on hiring, but obviously if someone comes in that's a superstar we'll hire them."
    Hough told the Mail Tribune two years ago that ComNet had more than $5 million in revenue and raised more than $35 million for its clients. He declined to reveal specifics, but said the company's revenue is substantially higher now.
    ComNet has nearly 1,000 clients, of which two are in Oregon, Hough said. "So we bring in a tremendous amount of money to this state, but the state doesn't appreciate it, so it will go elsewhere. We will be up between 250 and 300 people in three or four years, but those jobs won't be in Oregon. The tax increases are an absolute disincentive to grow my company. My competitors outside the state don't have a tax like this. I only want a level playing field, where everyone has an equal opportunity to win the game."
    According to Hough's letter to Esquivel, ComNet has no employees earning minimum wage, pays its workers an average of $30,000, and paid $192,840 in state tax withholding, in addition to its "considerable" corporate taxes. He wrote that expansion into two new offices would have cost $250,000 in annual taxes. That's based on projected income with additional hires.
    House Democrats, however, contend business owners haven't done their math correctly if they think tax bills will jump substantially.
    "Until I see the math to back it up, I think it's unfortunate they would say that," said Rep. Peter Buckley, D-Ashland. "Their premise is that the taxes are so high when it's really a modest increase. Companies that say they are leaving would only do it for rhetorical or political reasons. If they make a move it would be to make a political point, not for financial reasons."
    Buckley said he's still hearing from out-of-state companies planning to move to Oregon.
    "The whole premise that the measures made Oregon toxic for business is not a reality," he said. "People that talk down the state are doing us a disservice."
    ComNet's roots are deep, having begun here in January 1993, and several employees have been around a dozen or more years.
    "We certainly don't want to (move), because we've had so many employees who have always been loyal to us," said Bailey, who has been with Hough and operations vice president Jack Endrikat from the firm's inception. "But the long-term survivability of the company has to be taken into account."
    Hough said ComNet won't be alone in its exit.
    "I surveyed more than 200 companies in Jackson and Josephine counties," Hough said. "I asked four questions and the answer to three (dealing with expansion, layoffs and prices) didn't surprise me; that 65 percent said they would likely relocate if the new taxes were passed did. I anticipated about 20 percent said they would, it was 65 percent. If only a third of those companies do, who is going to pick up the slack?"
    Oregon companies have long used Nevada for leverage in political gamesmanship, said Kris Holt, executive director for Nevada Business Connections in Carson City. This time, however, he anticipates several Oregon companies will make the move.
    "I've been doing this for 20 years and 80 percent to 90 percent of the companies I've recruited have come from California," Holt said. "I don't know if I've ever landed an Oregon company before. I've been close before, but this time they're serious."
    Holt is going to the northern part of the state in two weeks and will meet with two electronics firms with 80 and 40 employees, a truck-bed maker with 50 employees and a dried fruit distributor in Turner.
    "I bet I'll be back up within a month for follow-ups," he said. "People are looking."
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